Gold rally is here to stay, can surge up to Rs 68,000 in 2 years

Amid gloomy economic outlook and continued uncertainty, if there is one asset class that looks likely to flourish, it is gold. With domestic prices at record highs, analysts see the uptrend continuing for the yellow metal.

On MCXNSE 0.26 %, August gold futures rose to a record high of Rs 48,589 per 10 gram on Wednesday. It closed at Rs 48,232, as traders locked in gains.

“The trend continues to be positive for gold. The geopolitical tensions, and IMF (The International Monetary Fund) cutting global economic forecasts, will keep the prices in an uptrend,” said Anuj Gupta Deputy Vice President–commodities & currencies research, Angel Broking.

The IMF projected a deeper recession and slower recovery for the virus-ravaged world economy than it anticipated two months ago. With the downturn deeper than previously projected, the global output will shrink by 4.9 per cent and emerging markets by 3 per cent this year.

It also slashed India’s growth outlook for the current fiscal year to a minus 4.5 per cent from 1.9 expansion estimated in April on the back of an extended Covid-19 lockdown and slower economic revival.

Meanwhile, global cases of the Covid-19 have surpassed 9 million, with Brazil and India grappling with a record surge in infections, and a host of countries including the US and China reporting new outbreaks.

On the geopolitical front, the recent border clashes between nuclear-armed India and China have also pushed investors to safe-haven bets.

“The weakness in the dollar index and US bond yields are also supporting the prices,” he added.

Dollar index, the measure of the greenback against a basket of currencies, is currently at 96.45 but has fallen sharply from a three-year high of 102.99 in March.

As all the aspects are conducive for gold prices, Gupta sees the yellow metal breaching Rs 50,000-51,000-mark over the next one or two months.

In the global market, spot gold rose 0.3 per cent to $1,772.43 per ounce by 1213 GMT, having earlier hit its highest since October 2012 at $1,779.06.

The expectations of a bull run in gold extend beyond the near term.

Kishore Narne, Associate Director and Head – Commodities and Currencies, Motilal Oswal Financial Services, sees gold prices touching Rs 65,000-68,000 over next 18-24 months, but it would depend on the movement of rupee versus the US dollar.

“The underlying fundamentals have a lot to do with expanding central bank balance sheets, lower or negative interest rates in some cases, and lack of alternative asset space for returns. All this is helping push money into gold,” said Narne.

Even after the Covid-19 pandemic recedes, the yellow metal may continue to log stellar returns.

“We are not seeing Covid-19 as a trigger here. It would take longer for economies to recover, and easy monetary policy is here to stay for at least two years, and this will continue to promote gold,” said Narne.

Courtesy: Economic Times

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